I wish I learnt this lesson earlier in my investing journey @slymeat. Too often I found myself averaging down thinking it was the smart thing to do. And to compound it I would sell my winners when I thought they got "expensive". Essentially I was watering my weeds and pulling my flowers.

Although it did provide a good learning experience & all part of the investing process. Better to learn these things early on in your journey with less capital available.

Often people say "I'll sell when it gets back to my buy price". The market doesnt care what price you paid, if you wouldnt buy it today then the chances are you should sell.

@SeymourButts, I think you nailed it with your last point "Would I buy back at today's prices?".  I was having trouble squaring the investment psychology circle on a few things until I heard a podcast where someone talked about the fact that you should consider everyday a blank slate i.e. you wake up 100% in cash and have no holdings and if you do nothing you are 'virtually' buying the portfolio you finished the previous day with.  Suddenly that made BUY HOLD SELL make sense.  I couldn't get my head around why you would recommend HOLD but not BUY.  If you didn't have it and weren't willing to BUY it, why wouldn't you SELL it if you owned it.  Of course the answer is context.  HOLD means the thesis isn't broken and you do a 'virtual' buy back to the same level you finished the previous day at - except you don't have to buy back in because the way the system works you automatically own what you finished yesterday with by doing nothing.  

Once you get your head around that the whole anchoring thing that your friend is a victim of starts to go away.  You start to think more critically about some of the investments you might of made earlier in your journey when you were a little less learned - they might of gone down or up (it doesn't matter) - and when you realise you're 'virtually' buying it back everyday suddently that puts it in a different context.  Anyway that's just my two cents worth.

The other thing you highlight in the Warren Buffett quote is how there's always a quote to suit an action.  Sometimes the same quote can be used to justify two diametrically opposed actions.  But that's the content of another straw...

Agree with everybody here.  My thought on that is - "When you've lost money on a stock, you don't have to make that money back in the same stock, you can change horses mid-race and make back your losses by backing something with a far brighter future." 

That's not actually a quote, it's a mash-up of a couple of different quotes, and I can't remember who said them, but one may well have been from Buffett, even if he was just repeating something that Benjamin Graham said.  I think I heard the horses part from one Andrew Page actually, might have been in a weekly Strawman email a couple of years ago.

From the book: The Art of Execution; How the world’s best investors get it wrong and still make millions, Your friend is defined as a rabbit investor. Rabbits do nothing when an investment falls, neither cutting nor adding. The rabbits tended to have the worst investor performance by far.

One must never look back when investing, only look forward, and the price you paid in the past should never enter the equation as to whether to sell.  The question should always be: would I buy this stock now ?  If it is a no, you sell (Assassin investor), if it is a yes, you buy more (a raider investor)  -unless it is too large a position - which it wont be if has fallen!.

I have a friend, and I have been telling him to sell a stock down (as I have done), but he too is wating for it to go back up to where he brought it.  This is even after giving him the book referenced above to read!

I find a way of dealing with this is to sell the loser, with the intent to  transfer the capital into one of my winners, or an investment I am confident will outperfom the loser.  I find it more painful to convert capital to cash.   

Hi @Rapstar,

May I confirm who is the author of that book?

I looked it up on Amazon/google, and there is one by Lee Freeman-Shor form 2015, and several others with similar titles released more recently.

Any advice on which to choose?